Having a small startup company in this day and age is more competitive and lucrative than ever. More investors are hooked onto the idea of investing in startups. Their belief is that divulging in some of their wealth can reap them massive long term profit and being closely committed to an industry that is changing day by day. There are other kinds of investment, which have a more communal strategy- pooling money from different, small time investors and ordinary people like you and me. So which kind of funding is best for your startup company?
What is Angel investing?
Angel Investing is when an affluent businessman or businesswoman invests in a business startup in exchange for a stake or equity in the startup. Famous examples include Donald Trump in the USA and Lord Alan Sugar in the UK. Famous startup companies who have thrived from Angel investments include Facebook and LinkedIn (investments from European Founders Fund).
It gives the investors a nice slice of the action when the startup profits without having to treat the investment as a full time job. They also get a deep insight into current developments in the industry of the startup, helping them keep up to date with benefits and limitations. In return the startup company gets practical, business and corporate advice that can’t be obtained publicly. The startup also gets access to a unique clientele and network through the investor. For example a real estate investing from an Angel investor can help boost a property startup like Airbnb.
What is crowdfunding?
In contrast, crowdfunding is a more communal form of raising finances. A large group of people, a crowd, help to find funds from various sources to help give capital to a startup. In he past, it had a more mail-orientated method, but with online payments and traders now far more convenient and safer, Internet-led crowdfunding is the norm.
Crowdfunding has a rich history, with books published through crowdfunding as far back as the 18th century. Nowadays, crowdfunding is done online, and can be a variety of different ways.
Peer to peer crowdfunding
This is where an investor and startup apply (usually online through a specialized crowdfunding website like founders.com) and each can search for each other. The investor gets a small percent on the startup and is putting money into a security loan for the borrower (startup company).
As the name suggests, this is geared towards a charitable cause, but can be equally viable as a source of capital. A borrower (Startup Company) may ask for investors as ordinary as you or me to invest without any return other than the fact the investor has invested from the kindness of their heart.
Software token or reward based crowdfunding
This is where, in return for an early release of a software, game, product or other service, an investor will put in money to the borrower.
If you’re looking for experience in the field and need some investments, and happy to share a slice of the profits, then go for an Angel Investment. However, if you have a communal mindset and happy to receive funding from more people, or happy to pre-release your product, crowdfunding is for you.